Even With A 28% Surge, Cautious Investors Are Not Rewarding Butterfly Network, Inc.'s (NYSE:BFLY) Performance Completely

Despite an already strong run, Butterfly Network, Inc. (NYSE:BFLY) shares have been powering on, with a gain of 28% in the last thirty days. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 58% share price drop in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Butterfly Network's P/S ratio of 3.3x, since the median price-to-sales (or "P/S") ratio for the Medical Equipment industry in the United States is also close to 3.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Butterfly Network

What Does Butterfly Network's P/S Mean For Shareholders?

Butterfly Network could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Butterfly Network's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Butterfly Network's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Butterfly Network's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. Still, the latest three year period has seen an excellent 36% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.4%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Butterfly Network's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Butterfly Network's P/S

Butterfly Network appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Butterfly Network currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You always need to take note of risks, for example - Butterfly Network has 4 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com